Edited version of private advice

Authorisation Number: 1052269735248

Date of advice: 22 October 2024

Ruling

Subject:Subdivision 124-N Trust and Unitholder Roll-overs.

All legislative references are to the Income Tax Assessment Act 1997.

Question 1

Are the Trustee of the Trust and the Unitholders able to claim roll-over relief under Subdivision 124-N in respect of the restructure?

Answer

Yes.

Question 2

Pursuant to section 124-875, will the Trustee of the Trust be able to disregard the capital gain from CGT Event A1 that happens when it disposes of all its CGT assets to the newly incorporated Australian proprietary limited company (New Co)?

Answer

Yes.

Question 3

Pursuant to section 124-870, will the Unitholders be able to disregard the capital gain that happens on the ending of their ownership of units in the Trust in exchange for the shares in New Co under the restructure?

Answer

Yes.

Question 4

Pursuant to subsection 104-10(3)(a), will the timing of the CGT event A1, for the disposal by the Unitholders of their shares in New Co to a future purchaser, be when the Share Sale Agreement (SSA) is entered into?

Answer

Yes.

Question 5

For the purpose of applying the CGT discount provisions, will subsection 115-34(2) apply so that the Unitholders are taken to have acquired their shares in New Co at least 12 months before their sale of those shares to a future purchaser under the SSA?

Answer

Yes.

Question 6

Pursuant to subsection 703-5(2), will the restructure and introduction of New Co mean the ABC tax consolidated group (ABC TCG) ceases to exist?

Answer

Yes.

Question 7

In line with question 6 above (ABC TCG ceasing to exist), will the tax cost setting amount for each membership interest in XYZ be set in accordance with Division 711?

Answer

Yes.

Question 8

Upon formation of the New Co TCG, will the tax cost setting amount for the membership interests in ABC and XYZ be set in accordance with Division 705?

Answer

Yes.

Question 9

Will the cost of the membership interests in the joining entities (ABC and XYZ), for the purposes of section 705-65, be calculated using subsection 124-785(2)?

Answer

Yes.

Question 10

Will the transfer of the assets from ABC and XYZ to New Co be ignored by virtue of the single entity rule in section 701-1?

Answer

Yes.

Question 11

Will the forgiveness of the debt arising from the transfer of assets covered in Question 10 be ignored by virtue of the single entity rule in section 701-1?

Answer

Yes.

Question 12

Will New Co's disposal of its shares in ABC give rise to CGT event A1 under section 104-10?

Answer

Yes.

Question 13

Will the market value substitution rule in section 116-30 apply to the disposal by New Co of its shares in ABC to the Unitholders?

Answer

No.

Question 14

Will Division 711 apply to work out the tax cost setting amount for New Co's membership interests in ABC when ABC leaves the New Co Tax Consolidated Group (TCG)?

Answer

Yes.

This ruling applies for the following period:

1 July 202x to 30 June 202x

Relevant facts and circumstances

The Trust was established on xx and is governed by the terms of the trust deed. The trust deed was varied on xx to remove clause xx from the original deed x. Clause xx previously stated the number of Unitholders must not exceed x.

The Trust held 100% of the shares in ABC and XX.

ABC is the head company and XYZ is the sole subsidiary member of the ABC TCG.

All Unitholders are Australian residents who hold their units on capital account and not as trading stock.

It is proposed that the Trust be replaced in the structure by a New Co.

At the time of New Co acquiring 100% of the shareholding in ABC and XX, ABC will cease to be an eligible head company and ABC TCG will cease to exist. New Co, ABC and XYZ will elect to form a new TCG (New Co TCG).

ABC and XYZ will transfer all of their business assets and liabilities to New Co. The consideration proposed for this acquisition will be at market values. This transaction will occur within the New Co TCG. Following the transfer of these assets, ABC and XYZ will have an amount receivable created against New Co. These amounts receivable, and their existing amounts receivable to each other, will be forgiven.

Within 12 months of receiving their shares in New Co, the Unitholders will dispose of their New Co shares.

Further, after the assets are transferred to the New Co, ABC and its wholly owned subsidiaries shares will be sold to the Unitholders at market value. When these entities are sold back to the original owners, they will cease to be eligible members of the New Co TCG.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 124N

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 109-5

Income Tax Assessment Act 1997 Section 115-34

Income Tax Assessment Act 1997 Section 115-45

Income Tax Assessment Act 1997 Section 116-20

Income Tax Assessment Act 1997 Section 116-30

Income Tax Assessment Act 1997 Division 701

Income Tax Assessment Act 1997 Section 703-5

Income Tax Assessment Act 1997 Section 703-15

Income Tax Assessment Act 1997 Division 705

Income Tax Assessment Act 1997 Division 711

Does IVA apply to this private ruling?

Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement.

If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax.

We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select 'Part IVA: the general anti-avoidance rule for income tax'.

Reasons for decision

Question 1

Are the Trustee of the Trust and the Unitholders able to claim roll-over relief under Subdivision 124-N in respect of the restructure?

Summary

Yes, the roll-over under Subdivision 124-N is available.

Detailed reasoning

Subdivision 124-N provides that entities can choose to obtain a roll-over if a trust disposes of all of its assets to a company and units or interests in the trust are replaced by shares in the company.

In subsection 124-855(1), a roll-over may be available for a restructure if:

a.            a trust disposes of all of its CGT assets to a company limited by shares;

b.            CGT event E4 in section 104-70 is capable of applying to all of the units and interests in the trust; and

c.            the requirements in section 124-860 are met.

The Trust will dispose of all of its CGT assets to the New Co, which will be a new company limited by shares.

CGT event E4 under section 104-70 occurs if the trustee of the trust makes a distribution to a beneficiary of the trust in respect of the beneficiary's unit or interest in the trust and some or all of the payment is not assessable. The amount that is not included in the taxpayer's assessable income is referred to as the 'non-assessable part'.

The note in subsection 124-855(1) states that a roll-over is not available for a restructure undertaken by a discretionary trust. For CGT event E4 to be applicable, all of the beneficiaries interest must have a fixed capital component.

The trust deed here does not provide any discretion as to the allocation of income or capital of the Trust.

The Unitholders have a fixed entitlement to income and capital. Therefore, the Trust and the New Co would satisfy the requirements for roll-over relief under subsection 124-855(1), provided the requirements in section 124-860 are met.

Requirements for roll-over for the Trust and New Co

Subsection 124-860(1) requires that all of the CGT assets owned by the Trust must be disposed of to the New Co during the trust restructuring period, ignoring any CGT assets retained by the Trust to pay existing or expected debts of the Trust.

Subsection 124-860(2) states that the trust restructuring period:

•                     starts just before the first CGT asset is disposed of to the New Co under the trust restructure; and

•                     ends when the last CGT asset of the Trust is disposed of to the New Co.

Under the restructure, the Trust will dispose of all of its CGT assets to the New Co. Therefore, the requirement in subsection 124-860(1) will be satisfied.

Subsection 124-860(3) requires that the New Co must not be an exempt entity, as defined in section 995-1.

New Co will be a newly incorporated Australian resident company limited by shares and satisfies this requirement. It is not an entity whose ordinary income and statutory income is exempt from income tax because of a Commonwealth law nor is it an untaxable Commonwealth entity.

Subsection 124-860(4) requires that the New Co must be a company that has:

a.            never carried on commercial activities; and

b.            no CGT assets, other than any or all of the following:

               i.           small amounts of cash or debt;

               ii.           its rights under an arrangement, if (collectively) those rights only facilitate the transfer of assets to the transferee from the transferor; and

c.            no losses of any kind.

As the New Co will be a newly incorporated company, it will have no losses or losses carried forward of any kind, will have no CGT assets and will have not carried on any commercial activities prior to the restructure. Therefore, it will satisfy all the requirements of subsection 124-860(4).

Subsection 124-860(5) provides subsection (4) does not apply to a transferee that is the trustee of the transferor.

Subsection 124-860(6) requires that, just after the end of the trust restructuring period:

a.            each entity (Unitholder) that owned interests (units) in the Trust just before the start of the trust restructuring period must own replacement interests (shares) in the New Co in the same proportion as it owned those units in the Trust; and

b.            the market value of the replacement interests (shares) each of those entities owns in the New Co must be at least substantially the same as the market value of the interests (units) it owned in the Trust just before the start of the trust restructuring period.

The 'proportionate interest' test in paragraph 124-860(6)(a) compares the proportionate ownership of interests held by the Unitholders in the Trust (transferor) just before the trust disposes of its first CGT asset to New Co (the transferee) under the trust restructure, with the proportionate ownership of shares in New Co that each Unitholder will have just after the trust restructuring period.

The 'market value test' in paragraph 124-860(6)(b) requires that the market value of the replacement shares in New Co just after the trust restructuring period be at least substantially the same as the market value of the interests in Trust just before the start of the trust restructuring period.

The term 'replacement interests' is defined in paragraph 124-870(1)(b) as the shares in a transferee company where ownership of units in a trust end under a trust restructure in exchange for those shares.

The replacement interests are the shares held by the Unitholders in New Co that replace the units held by the Unitholders in the Trust.

The requirements of subsection 124-860(6) will be satisfied.

Further, subsection 124-860(7) states that for the purposes of subsection (6), ignore any shares in the New Co that:

a.            just before the start of the trust restructuring period, were owned by entities who together owned no more than 5 shares; and

b.            just after the end of that period, represented such a low percentage of the total market value of all the shares that it is reasonable to treat other entities as if they owned all the shares in the transferee.

The Explanatory Memorandum to Taxation Laws Amendment Bill (No 4) 2002 states:

2.28 As the company may be a shelf company, a nominal number of shares may be owned by entities ... period only own up to 5 shares collectively at that time [Schedule 2, item 1, paragraph 124-860(7)(a)] . Those shares ..., just before the trust restructuring period, can be considered to own all the shares in the company just after the end of that period [Schedule 2, item 1, paragraph 124-860(7)(b)].

Subsection 124-860(7) seeks to ignore shareholdings of no more than five shares owned by entities other than the beneficiaries of the trust and to provide for the disposal of assets by a trust to a shelf company. Based on the assumptions on which this ruling is made, this requirement will be satisfied.

Where the market value of the shares owned by each shareholder in the New Co will be the same as the market value of the units which each unit holder owned in the Trust just before the start of the trust restructuring period subsection 124-860(6) will be satisfied.

Therefore, where all the requirements in section 124-860 are met, the Trust and the New Co can choose the roll-over relief.

Under section 124-865 roll-over is only available for the Trust and the New Co if both the transferor and transferee choose to obtain it. As both the Trust and the New Co will choose to obtain the roll over, the roll over is available.

Roll-over for owner of units or interests in a trust

Section 124-870(1) states that you can choose a roll-over (whether or not the Trust and the New Co in this case choose to obtain a roll-over and even if CGT event J4 applies) if:

a.            you own units or interests in the transferor (your original interests ); and

b.            the ownership of all your units or interests ends under a trust restructure in exchange for shares in the transferee (your replacement interests).

Section 124-870(2) states you must make the choice for each of your original interests.

Section 124-870(3) states an entity that is a foreign resident cannot choose a roll-over under this section unless the replacement interests the entity acquires in the transferee are taxable Australian property just after their acquisition.

Section 124-870(4) states if you choose a roll-over, you cannot make a capital loss from a CGT event that happens to your original interests during the trust restructuring period.

This section does not apply to your ownership of an original interest ending if (section 124-870(5)):

a.            the interest was an item of your trading stock and the corresponding replacement interest becomes an item of your trading stock when you acquire it; or

b.            the interest was not an item of your trading stock but the corresponding replacement interest becomes an item of your trading stock when you acquire it.

Under the restructure the units held by the Unitholders of the Trust will end in exchange for ordinary shares issued in New Co (proportionate to their respective holdings) and the Trust will be terminated within 6 months from the date of the first transfer of CGT assets to New Co. Therefore, all the Unitholders are able to choose to obtain a roll-over, as the requirement in subsection 124-870(1) will be satisfied.

Based on the assumptions on which this ruling is made, the requirement in subsection 124-870(2) will be satisfied.

All the Unitholders are Australian tax residents, therefore the requirement in subsection 124-870(3) is not applicable.

If any unitholder chooses the roll-over, they cannot make a capital loss from a CGT event that happens to their original unit holding during the trust restructuring period (subsection 124-870(4)).

Based on the assumptions on which this ruling is made the Unitholders did not hold their units as trading stock and will not hold their shares in New Co as trading stock, the exception in subsection 124-870(5) is not applicable.

Consequently, each unitholder will be eligible to choose to obtain a roll-over under subsection 124-870(1).

Question 2

Pursuant to section 124-875, will the Trustee of the Trust be able to disregard the capital gain from CGT Event A1 that happens when it disposes of all its CGT assets to the newly incorporated Australian proprietary limited company (New Co)?

Summary

The Trustee for the Trust will be able to disregard the capital gain that happens when it disposes of its CGT assets to New Co under the restructure.

Detailed reasoning

Under section 104-10, CGT event A1 happens if you dispose of a CGT asset. CGT event A1 will happen when the Trust transfers its CGT assets to New Co.

Subsections 124-875(3), (5) and (6) do not apply as:

•                     the Trust did not acquire its CGT assets before 20 September 1985

•                     the Trust did not hold its CGT assets as trading stock and neither will it be the trading stock of New Co, and

•                     New Co is not a foreign resident.

Therefore, pursuant to subsection 124-875(1) any capital gains or capital losses from CGT event A1 happening to the Trust under the restructure will be disregarded.

Question 3

Pursuant to section 124-870, will the Unitholders be able to disregard the capital gain that happens on the ending of their ownership of units in the Trust in exchange for the shares in New Co under the restructure?

Summary

The Unitholders will be able to disregard the capital gain that happens on the ending of their ownership of units in the Trust in exchange for shares in New Co under the restructure.

Detailed reasoning

The roll-over does not apply if the Unitholder held the interests in the Trust as an item of trading stock and/or the replacement interests will be an item of trading stock when the Unitholder acquires them (subsection 124-870(5)).

Subdivision 124-A sets out the roll-over consequences where a roll-over has been chosen.

Section 124-15 describes the consequences (in most cases) if you can obtain a roll-over when your ownership of more than one CGT asset (the original assets) ends and you acquire one or more CGT assets (the new assets).

Therefore, pursuant to section 124-870 the Unitholders will be able to disregard the capital gain that happens on the ending of their ownership of units in the Trust in exchange for shares in New Co under the restructure.

Question 4

Pursuant to subsection 104-10(3)(a), will the timing of the CGT event A1, for the disposal by the Unitholders of their shares in New Co to a future purchaser, be when the Share Sale Agreement (SSA) is entered into?

Summary

The timing of the CGT event A1 will be when the Unitholders enter into the SSA or if there is no agreement/contract when the change in ownership occurs for the disposal of their shares.

Detailed reasoning

Under section 104-10(1), CGT event A1 happens if you dispose of a CGT asset.

Section 104-10(2) states you dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law.

However, a change of ownership does not occur if you stop being the legal owner of the asset but continue to be its beneficial owner.

Section 104-10(3) states the time of the event is:

•                     When you enter into the contract for the disposal or

•                     if there is no contract, when the change of ownership occurs.

When the Unitholders/shareholders of New Co enters into a SSA to sell their shares in New Co, the timing of the CGT event will be when they enter into the contract for the disposal of their shares (the date of the execution of the SSA).

Question 5

For the purpose of applying the CGT discount provisions, will subsection 115-34(2) apply so that the Unitholders are taken to have acquired their shares in New Co at least 12 months before their sale of those shares to a future purchaser under the SSA?

Summary

Subsection 115-34(2) will apply to the Unitholder's New Co shares when sold under the SSA.

Detailed reasoning

Section 115-34 provides that where a CGT event happens to your share in a company that you acquired as a replacement asset under Subdivision 124-N (disposal of assets by trusts to a company), and at the time of the CGT event you had owned the shares for less than 12 months, sections 115-25 and 115-40 apply as if you had acquired the share at least 12 months before the CGT event.

Each of these requirements are met, therefore subsection 115-34(2) will apply.

Question 6

Pursuant to subsection 703-5(2), will the restructure and introduction of New Co mean the ABC tax consolidated group (ABC TCG) ceases to exist?

Summary

ABC will cease to be a head company and the ABC TCG ceases to exist.

Detailed reasoning

Section 703-5(2) provides the consolidated groupcontinues to exist until the head company of the group:

(a)            ceases to be a head company; or

(b)            becomes a member of a MEC group.

The consolidated group ceases to exist when one of those events happens to the head company.

ABC is the head company and XYZ is a subsidiary member of the ABC TCG prior to the restructure.

In accordance with section 703-5(2), after the proposed restructure New Co will meet the requirements in columns 2 and 3 of item 1 to the table in section 703-15. That is, the New Co will be an Australian tax resident (not a prescribed dual resident) and its taxable income will be taxed at a corporate tax rate for Australian income tax purposes.

ABC will no longer meet the requirements in column 4 of item 1 of the table in section 703-15, therefore, ABC will not be a head company and the ABC TCG will cease to exist.

Question 7

In line with question 6 above (ABC TCG ceasing to exist), will the tax cost setting amount for each membership interest in XYZ be set in accordance with Division 711?

Summary

The tax cost setting amount for XYZ will be worked out in accordance with Division 711.

Detailed reasoning

Item 2 of the table in section 701-60 provides that section 711-15 or 711-55 are used to work out an asset's tax cost setting amount where an entity leaves a consolidated group.

The Proposed Restructure involves the ABC ceasing to be the head company and the ABC TCG ceasing to exist. As XYZ is the only subsidiary of ABC, section 711-15 is the relevant provision in determining the tax cost setting amount for XYZ.

Therefore, the tax cost setting amount for membership interests in XYZ will be set in accordance with Division 711.

Question 8

Upon formation of the New Co TCG, will the tax cost setting amount for the membership interests in ABC and XYZ be set in accordance with Division 705?

Summary

The tax cost setting amount for the membership interests in ABCand XYZ will be worked out in accordance with Division 705.

Detailed reasoning

Item 1 of the table in section 701-60 states that Division 705 provides the tax cost setting amount for assets where entities become subsidiary members of a consolidated group.

Therefore, Division 705 is applicable in the tax cost setting amounts of ABC and XYZ.

Question 9

Will the cost of the membership interests in the joining entities (ABC and XYZ), for the purposes of section 705-65, be calculated using subsection 124-785(2)?

Summary

Yes, the cost base of New Co's shares in ABC should be set in accordance with subsection 124-875(2).

Detailed reasoning

The capital gain is disregarded if you choose the roll-over in subsection 124-875(1). New Co will receive the assets and liabilities of the Trust (the shareholding in ABC and XYZ).

Subsection 124-875(2) provides that the first element of the cost base of the RHPL shares received by New Co as a result of the trust restructure will be the same as the cost base of those shares just before the acquisition.

In accordance with section 705-65 (with reference to the table), where the market value of the shares in ABC and XYZ are equal to or greater than their cost base, then the amount (being the step 1 amount for 705-60) be that cost base. This is the case, based on the assumptions on which this ruling is made.

Therefore, the cost base of New Co's shares in ABC should be set in accordance with subsection 124-875(2).

Question 10

Will the transfer of the assets from ABC and XYZ to New Co be ignored by virtue of the single entity rule in section 701-1?

Summary

On the basis that they are all members of the same TCG, the transfer of assets will be ignored as a result of the single entity rule.

Detailed reasoning

Section 701-1 is a key provision by which the members of a consolidated group are treated as a single entity (being the head company) for head company core purposes and entity core purposes (which includes determining income tax liability).

Section 701-1(1) provides that any subsidiary members of an Australian income TCG is taken to be a part of the head company of the group rather than as a separate entity or entities for working out any income tax liability applicable to a relevant period.

In addition, Taxation Ruling TR 2004/11: Income tax: consolidation: the meaning and application of the single entity rule in Part 3-90 of the ITAA 1997, explains the meaning and application of the 'single entity rule'. It provides at paragraph 32 that '[a] further consequence of the SER is that intra-group dealings are not recognised for income tax purposes'.

A TCG will be formed with New Co as the head entity, and ABC and XYZ as the subsidiary members.

On the basis that all of these three entities will all be members of the same tax consolidated group when the asset transfer takes place, that asset transfer will be ignored as a result of the single entity rule.

Question 11

Will the forgiveness of the debt arising from the transfer of assets covered in Question 10 be ignored by virtue of the single entity rule in section 701-1?

Summary

Where a debt owed by one member of a consolidated group to another member of the same group is forgiven, the transaction is disregarded by the head company of the income TCG. The commercial debt forgiveness rules do not apply to that forgiveness.

Detailed reasoning

Section 701-1 provides for the single entity rule applicable to income TCGs. That is, intra-group loans and intra-group dealings are not recognised for the group's income tax purposes.

ABC and XYZ will transfer their assets to New Co for market value. There are existing intercompany balances between ABC and XYZ.

Following this transfer and creation of the subsequent intercompany debts, the debts will be forgiven.

The ATO Interpretative Decision ATO ID 2005/344 Income Tax: Consolidation: Single entity rule and commercial debt forgiveness provides '[t]he debt forgiveness is ignored because the single entity rule deems subsidiary members to be parts of the head company rather than separate entities during the period that they are members of the consolidated group'.

Consequently, the debt forgiveness will be ignored as a result of the single entity rule.

Question 12

Will New Co's disposal of its shares in ABC give rise to CGT event A1 under section 104-10?

Summary

New Co's disposal of its shares in ABC will give rise to CGT event A1.

Detailed reasoning

Division 104 provides a summary of the CGT events which can result in a capital gain or loss.

Section 104-10 provides that the disposal of a CGT asset is CGT event A1. New Co will sell its shares in ABC to the original Unitholders of the Trust. The sale will constitute the disposal of a CGT asset.

Therefore, New Co's disposal of its shares in ABC will give rise to CGT event A1.

Question 13

Will the market value substitution rule in section 116-30 apply to the disposal by New Co of its shares in ABC to the Unitholders?

Summary

The market value substitution rule will not apply as New Co will sell ABC to the original Unitholders at market value.

Detailed Reasoning

Section 116-20 provides that capital proceeds from a CGT event are the total of:

a)            the money you have received...; and

b)            the market value of any other property you have received... in respect of the event happening (worked out as at the time of the event).

Section 116-30 will, in certain situations, substitute the market value of a CGT asset subject to a CGT event for the capital proceeds actually received. The market value substitution rule will not apply in this case as the original Unitholders will pay market value for the ABC shares.

Question 14

Will Division 711 apply to work out the tax cost setting amount for New Co's membership interests in ABC when ABC leaves the New Co Tax Consolidated Group (TCG)?

Summary

Division 711 will be the division for determining the tax cost setting amount for New Co's membership interests in ABC and XYZ.

Detailed Reasoning

As explained above, where a subsidiary member leaves a consolidated group, Division 711 provides the process through which the tax cost setting amount of an entity is determined in the event where an entity, or entities, cease to be subsidiary members of consolidated groups.

During the restructure, ABC and XYZ will leave the New Co TCG, and when that occurs, Division 711 will be the relevant division for determining the tax cost setting amount for New Co's membership interests in those companies.

Question 15

Will section 115-45 prevent the capital gain made by the Unitholders on the future sale of New Co shares from being a discounted capital gain?

Summary

Section 115-45 will not apply as the requirement in subsection 115-45(4) is not met.

Detailed Reasoning

Section 115-45 denies the 50% discount where the 3 conditions in subsections 115-45(3), (4) and (5) are met. Those requirements will be met if you hold more than 10% of the equity and the majority of the entity's CGT assets (by cost and by value) have been acquired less than 12 months before the sale.

At the time the Unitholders sell their New Co shares, then 50% of the cost base of the CGT assets held by New Co will be attributed to assets deemed to have been acquired more than 12 months before the CGT event in accordance with subsection 115-34(5)).

As a result, the requirement in subsection 115-45(4) is not met and subsection 115-45(2) will not apply.